Cathay comes home to roost

Cathay comes home to roost

Cathay comes home to roost

THERE was a time when Cathay Pacific Airways was seriously cool, oozing charisma, refinement – and profitability.

It was the aviation brand equivalent of Coco Chanel or Louis Vuitton, as it dashed across the south-east Asian skies with self-assured elan, opulently conveying its passenger and cargo traffic to Europe and global destinations beyond, recalls Nigel Tomkins.

40 years and more ago, from the vibrant attractiveness and oriental mystery of its then exotic, if monopolistic, Hong Kong home, Cathay was a blue-chip carrier operating from one of the world’s most glittering trading hubs, paving a rich pathway linking east with west, overpowering long-held geographical, cultural and economic barriers and traditions.

Cathay was a profitable, fashionable and forward-looking business. Its mostly British flight deck crews enjoyed the best training and were among the highest paid in the world. Its Rolls-Royce-powered fleet was the newest – and its managers seemed always to know what they were doing. Cathay was consistently in the top five of all carriers for quality and reliability and it had the support of a loyal and stable workforce. Hong Kong was still a place of bewitching mystery and potential and always a conundrum with a Chinese puzzle at its heart. Today, people are wondering whether Cathay can survive.

After some extremely tough financial scenarios, as the magnetic pull and the uniqueness of Hong Kong has gradually become subsumed into the morass of China, and as the emergence of China’s own airline and hub airports business started to dine at the same commercial table, what plans are there for survival in this new world?

A management reshuffle, involving chief executive Ivan Chu Kwok-leung being replaced by chief operating officer Rupert Hogg, initially boosted the company’s shares. But there appear to be no substantial answers, especially after an alleged US$2billion disappeared from Cathay’s coffers in the last three years, following a catastrophic fuel-hedging gamble that wiped away years of profits, leaving the airline gasping for breath.

Cathay instigates a three-year reconstructure process

Now there are rumours of takeovers and mergers, as a secretive management and its defensive PR machine seems to have gone into hiding. The carrier lost US$74 million last year, the first time its profits dropped into the red since 2008. Revenue fell by nine per cent to $12 billion. Cathay instigated a three-year restructuring process earlier this year, seeking $0.5 billion in savings, with $0.25 billion targeted for this year. That plan included management jobs cuts, a pay freeze for managers, a halt on all non-urgent recruitment and a 30 per cent cut in staff costs at its Hong Kong base.

Despite these measures, Cathay’s current business model appears to be irrevocably flawed in a changing aviation world, driven by non-legacy, low-cost competition. Serious questions are being raised about management competence and has failed to obtain official responses from Cathay’s outsourced media services company. We have turned instead to the increasing references and speculation found on online platforms and blogs.

These reckon that Cathay Pacific Airways has lost its glamorous and exclusive image because, according to one report in particular, it is no longer a glamorous and exclusive business. And they suggest there is no turnaround on the horizon.

The airline rightly blames a slump in business travel revenue amidst intense global aviation market conditions – and the increasing competitiveness and boldness of mainland Chinese airlines and airports, as well as from Middle East carriers. Reports say China plans to build more than 50 new airports by 2020 to accommodate more passengers and cargo, thereby raising the number of civil transport facilities in the region from 210 to 260. The Chinese government is ambitiously planning six new airport clusters nationwide and also wants to further elevate its existing major airports at Beijing, Shanghai and Guangzhou. Chinese airlines, offering direct services to other countries from these hubs, has resulted in dwindling numbers of people flying into and out of Hong Kong.

During the 1970s, ‘80s and ‘90s Cathay benefited from its colonial monopoly concession from the Hong Kong government. That co-dependency remains: Cathay and its Anglo-Chinese Swire Group owners have a unique and lucrative deal with the government. It is a cosy collusion, which is preventing Hong Kong travellers from benefiting from the entry of local, low-cost, discount competitors.

Why Cathay is finding it difficult to compete

Cathay has found itself in a darkening nowhere-land place – unable to compete as a discount airline, and unable to sustain a premium brand. The current response, it seems, is to cut costs and quality, as evidenced by numerous complaints published online about Cathay’s falling service standards – and by the outsourcing of its business class lounge.

Perhaps the only viable option for owner Swire is to sell Cathay to a mainland China buyer while it still holds saleable assets which include its landing slots, a developed cargo business and extensive maintenance, repair and overhaul (MRO) facilities.

From its British beginnings, its Rolls Royce-powered fleets of modern aircraft, its employment of attractive, multi-lingual flight attendants, to inflight cuisine consisting of the finest wines and the best of Cantonese and western cuisine, Cathay was once the smooth operator where the rest of China and its undeveloped air transport industry was the rough.

They were the sweet and sour of the region. How things have changed.